By Karolina Tagaris and Lefteris Papadimas
ATHENS (Reuters) - Greek Prime Minister Kyriakos Mitsotakis said on Saturday the economy was set to grow by a better-than-expected 5.9% this year and announced tax cuts and other relief measures to help businesses and households strained by the coronavirus pandemic.
Greece emerged from a decade-long financial crisis in 2018 but saw its economy slump again by 8.2% last year amid restrictions to curb the spread of the COVID-19 pandemic, which also hurt its vital tourism industry.
The government's medium-term fiscal plan had projected growth of 3.6% for 2021.
"Today we are announcing the revision of the (growth) target for 2021 from 3.6% to 5.9%," Mitsotakis said in his annual policy address in the city of Thessaloniki.
"Our country is stronger today than it has been in many years. It is stronger economically, it is stronger geopolitically," he said. "Its image abroad has changed."
To offset price hikes in energy and other essential goods driven by soaring global gas and transport prices, Mitsotakis said the government would maintain the lower 13% VAT rate for coffee and soft drinks, tourism, cinemas and gyms. It would also spend 150 million euros in electricity bill subsidies and offer more heating handouts to poor households.
It will also cut pension contributions by three percentage points, a so-called solidarity tax surcharge on incomes will be terminated for another year in 2022 and corporate tax will be lowered from 24% to 22% next year. Small businesses that merge will benefit from a 30% cut in taxation.
As Mitsotakis spoke, more than 15,000 people protested over issues ranging from economic policy to coronavirus vaccines. Clashes broke out between anti-vaccine protesters and police who fired tear gas and water canon to break up the crowd.
Greece's economy grew by 3.4% in the second quarter of this year, beating forecasts and giving the government fiscal space to proceed with tax relief measures.
Its annual expansion rate hit 16.2% thanks to a pick-up in consumer spending and investments.
Analysts attributed the second quarter's growth mainly to the lifting of lockdown measures, pent-up demand and a boost from state support measures, and less to tourism, the impact of which is expected to be manifested in the third quarter.
As the pandemic brought global travel to a standstill, Greek tourism suffered its worst year on record in 2020 with just 7 million visitors compared with a record 33 million in 2019.
The sector, which accounts for about a fifth of the economy and a fifth of jobs, brought in revenue of 4 billion euros, less than a quarter of 2019's 18 billion.
The government says it is counting on 40% to 50% of 2019 levels this year.
(Editing by Gareth Jones)